Having read the report,, I think that would be a very inaccurate interpretation of it. The report devotes only a tiny fraction of its content to anything that might be labeled "austerity" (a word they conspicuoulsy avoid using) and to the extent it takes on the topic of fiscal adjustment, the staff clearly concludes it was necessary and unavoidable. Any modifications they might prefer to have seen are clearly minor tweaks of design, and not a repudiation of fiscal disclipine. Paragraph 67 states this most clearly:
"67. The report does not question the overall thrust of policies adopted under the SBA supported program. . Fiscal adjustment was unavoidable, as was the sharp pace of deficit reduction given that official financing was already at the limit of political feasibility and debt restructuring was initially ruled out. Structural reforms were clearly essential to restoring competitiveness. Some questions can be raised about the types of measures (overly reliant on tax increases) and structural conditionality (too detailed in the fiscal area), but the policies adopted under the program appear to have been broadly correct. [Boldface in original]."
Moreover, they clearly blame government spending for Greece's predicament in the first place. Paragraph 46 states that "the ballooning of the fiscal deficit in the 2000s was almost entirely due to increased expenditure". Paragraphs 2 & 3 explain that in greater detail: "Adoption of the euro and loose global credit conditions in the 2000s allowed Greece easy access to foreign borrowing that
financed a significant expansion of government spending." After adopting the euro, "government interest expenditure dropped from 11½ percent of GDP in the mid-1990s to 5 percent of GDP in the mid-2000s. However, these savings were more than swallowed up by increased spending on wages and pensions." In other words, the IMF is saying, in Greece, all the fiscal benefit from joining the euro was transferred to public sector employees. The pension system was a particular cause of Greece's fiscal problems: "At 16 percent of GDP, pension spending in Greece was among the highest in the EU in 2010. Key pension indicators suggested a generous system: the replacement rate (pension-to-wages) was 57 percent, the third highest in EU; the dependency rate (pensioners-to-contributors) was 29 percent, above the EU average; the official retirement age was 60, well below the OECD average of 63.2, and the average pension (including all pensions) was very close in level to that of a typical German worker with full contribution history. Pension projections pointed to a solvency problem."
Paragraph 4 goes on to portray Greeks as using the benefits of the euro to boost their current consumption at the expense of investing in their future: "The counterpart to the decline in government saving was a sharply widening current account deficit [the excess of imports over exports] that reached 15 percent of GDP in 2008. The sustained economic boom and a lack of competition in domestic goods and services markets kept wage and price inflation consistently above euro averages. Competitiveness, as measured by the unit labor cost (ULC) -based real effective exchange rate (REER), declined by 20-30 percent in the decade following euro adoption."And how bad was the so-called "austerity"? Paragraph 26 summarizes it as follows: "primary expenditure declined by 4 percentage points of GDP in 2009–11, but still exceeded the 2005 level by about the same amount. Moreover, the wage bill remained high compared with other EU
countries; programs for social protection remained largely untargeted and inefficient ...." [my emphasis]. The review instead implies, in paragraph 46, that the mix of fiscal discipline ought actually to have been more weighted toward reducing spending than it was: "As discussed earlier, the
ballooning of the fiscal deficit in the 2000s was almost entirely due to increased expenditure. The large dose of revenue measures ... can thereore be questioned ...." Paragraph 47: "plans to downsize the number of civil servants were limited to a commitment to replace only 20 percent of those who retired. The state enterprises also remained generously staffed."
Nor does the review advocate a slower pace of fiscal consolidation. Paragraph 38-40: "It is difficult to argue that adjustment should have been attempted more slowly."; and "While earlier adjustment of the targets could have tempered the contraction, the program would then have required additional financing" while noting the Greek bailout was already the largest in IMF history. The staff also rejects the notion that the imposition of austerity caused the macroeconomic contraction: "Part of the contraction in activity was not directly related to the fiscal adjustment, but rather reflected the absence of a pick-up in private sector growth due to the boost to productivity and improvements in the investment climate that the program hoped would result from structural reforms. Confidence was also badly affected by domestic social and political turmoil and talk of a Greek exit from the euro by European policy-makers. " This is similar to what we saw in the US in 2008 and 2009, when the government's drastic intervention in many markets and companies caused many private sector actors to sit on their hands until things settled down and political risk subsided. The report's bottom line is that, while mistakes were made, the overall approach was "broadly correct" and the main problem with the Greek economy and polity; paragraphs 33 & 34 observe that the major labor markets, key producers and the regulatory environment all remained resistant to structural reforms, meaning that growth was stifled by key players in the Greek economy holding on to economic rents embedded in the existing political setup. In reporting on the report's analysis of the 2010 decision to not require a debt write-down at the time, although one became necessary in 2012, the articles also downplay the systemic risk that the report identifies in multiple places as a concern. Both reports quote the review's characterization of the step as "politically difficult".in 2010, implying that the protection of private debt at the time was a "politically" motivated one. This severely mischaracterizes the report, I believe. Rather, the report emphasizes that there was extensive concern in 2010 that Greece could become "another Lehman" the disorderly default by which would have terrible spillover effects on the rest of the European and world economy by taking down numerous large financial intermediaries. Footnote 1: "The ECB argued that the financial integration associated with monetary union - a benefit during normal times – served to intensify systemic spillover effects during periods of stress." Paragraph 14: "a high risk of international spillover effects provided an alternative justification for [the IMF to participate in a Greek bailout]". Paragraph 42: "if Greece had defaulted, the absence of deficit financing would have required primary fiscal balance from the second half of 2010. This would have required an abrupt fiscal consolidation, and led to an evaporation of confidence and huge deposit outflow that would have most likely made the contraction in output even larger." So Paragraph 55 spells out the analysis that led the 2010 negotiations to take a debt restructuring off the table: